The Rubicon is a river in Italy that played a major role in the history of Rome and Western Civilization. Prior to Julius Caesar, it was considered an inviolable boundary for a general commanding an army. To cross it with your army was considered an act of treason against the State.
Caesar did just that in 49 B.C. Caesar left Rome to be come the governor of Cisalpine Gaul (northern Italy), Illyricum (southeastern Europe) and Transalpine Gaul (southern France) in 58 B.C.. Actually, he unsuccessfully fled Rome to avoid his mounting debts (he liked to gamble and was a bon vivant). He was only allowed to continue to Gaul after his wealthy friend Crassus paid and guaranteed the debts for him. His conquest of all of Gaul and the details of his military genius are well known, particularly since he wrote it all down in the form of a partial autobiography.
Ambitious men were not welcome to the old Roman order. The Romans had an unpleasant experience with a dictator that led to their founding, and it was in their DNA to despise such men. Caesar was a major threat….At his core, Caesar was an extremely gifted politician. The conquest of Gaul was about glory and money, mostly the latter. Having achieved his goals, he wanted to return to Rome, but was justifiably fearful that a return without his army would be suicidal. He faced a monumental decision and concluded that his destiny was in crossing that famous river to march on Rome with his army. As was said at the time, “the die was cast”.
It did not end well for anybody, particularly and swiftly for Caesar. The Roman Republic was no more. What followed was a civil war as well as the replacement of the Senate with an emperor class that lasted almost 500 years until the Western Empire was no more. The new Rome continued to require more and more wealth to maintain and defend the Empire. It was not a great time for their neighbors, either. Wars were fought to acquire money, resources and slaves, the last being won by Trajan in Dacia. It was a very ugly period in human history.
Last week, the U.S. accomplished its own version of Caesar’s march across the Rubicon. The election answered virtually all outstanding questions except one, “when”. There are no more “ifs”. The majority voted to go with the existing leaders and agenda. Regardless of where one is on the merits of that outcome, it is clear that we are now charging headlong for financial Armageddon. It is just simple arithmetic.
There is no turning back. The voters have in effect demanded hyperinflation and destruction of economies and currencies. Rather than a fiscal cliff, we are now traveling full-speed ahead toward a financial black hole. A key aspect of black holes is that there is a point where one cannot escape the gravitational pull. The belief is that you emerge on the other side into some alternative universe.
What that new universe will look like is anyone’s guess, although history is very clear about the basic phases ahead and the endpoint. Like the Romans, this will not end well. It is just history. It is just what we humans seem to do. There are moments in history when panic is the correct action. We are at such a moment.
People say that as California goes, so goes the Nation. In the 2010 California statewide election, virtually everyone that stood for claiming to try and fix the underlying fiscal problems was politically slaughtered. The California electorate made it very clear that they liked the status quo and wanted more of it. It was full speed ahead toward financial Armageddon. California matters to the nation and the world. California’s economic output would rank it among the top economies of the world, at least for the moment.
In that election, the decisions revolved around maintaining and increasing spending. It was achieved in the last two years by borrowing as well as shifting the burdens to counties. In this election, it was about revenue generation. The electorate passed a major initiative not only to raise rates, but the measure applied the increases retroactively. The politicians were awarded a free hand to do whatever will be deemed necessary due to the election of a legislative super majority. There is no longer any semblance of a financial firewall.
We believe that this template will be applied at the national level as well as globally. Tax increases of all kinds will now emerge. Despite the negative impact on economic growth, those concerns will be pushed aside to protect against the “Fiscal Cliff”. We will continue the charade of governments issuing debt to be “repurchased” by central banks creating money out of electrons. New and expanding forms of wealth confiscation will proliferate. The people of the world have given the politicians a green light. The financial and economic “Black Hole” grows closer.
Rather than trying to guess the answer as to “when”, investors must take action immediately. For those with wealth to protect, this is no longer an intellectual exercise to guess on outcomes or allocations. This is coming down to an intelligence test. Survivors will take very significant positions in gold and silver. History is crystal clear that such action is the primary way in which to preserve wealth.
Time is very, very short to do so. The questions have been answered for anyone willing to look at the reality of the situation. The only uncertainty is “when.”